Do you want to create your own online store?

Turn on the money tap: A beginner’s guide to online payment gateways

A beginner’s guide to online payment gateways

An online payment gateway is an essential component of a serious online business: it is what will allow you to smoothly and securely receive payments through various modes like UPI, net banking and credit/debit cards. This guide will provide you with a good understanding of everything you need to know about payment gateways as an online seller, including how you can integrate a payment gateway with your online store. 

Note: In this guide, an online seller is often referred to by the term ‘merchant’, since it is a commonly used part of the jargon surrounding payment gateways.

Understanding payment gateways

In essence, a payment gateway is an interface that allows customers to submit certain transaction-related details, and then forwards that information to a payment processing entity. 

There are offline as well as online payment gateways. An offline payment gateway is essentially a point-of-sale terminal: the kind of device used to swipe a card, punch in an order price and the customer’s PIN – all of which can be accomplished today by simply tapping the card on the device. An online payment gateway is, very simply put, the online counterpart of such a terminal. 

More specifically, an online payment gateway is software that serves to securely transfer transaction-related data from a merchant (i.e. you, an online store owner) to the merchant’s acquiring bank (i.e. the bank that will receive the money paid by the merchant’s customers). This software acts as an interface between the ‘Purchase/Buy’ page on an online store and the acquiring bank.

When a customer clicks the ‘Purchase’ or ‘Buy’ button in your store, several key details regarding the purchase, such as price, quantity, credit card number, etc., are captured by your store and then forwarded to the online payment gateway. 

The online payment gateway encrypts all this data and sends it to the acquiring bank via a ‘payment processor’, usually after some basic fraud checks. After this point, the acquiring bank, issuing bank (i.e. the customer’s bank), and the relevant card network (e.g. Visa, Mastercard, etc.) carry out a carefully orchestrated series of exchanges that end with the customer’s payment either being accepted or rejected. This final status is conveyed to the online payment gateway, which then passes it on to the customer through your store.

Behind the scenes, the issuing bank will transfer the transaction amount to the ‘merchant account’: a merchant account is a special kind of bank account held with the acquiring bank that enables merchants to process and accept card payments in exchange for a fee, and for complying with certain standards and regulations. While each merchant traditionally used to have a dedicated merchant account, these days, there are several so-called ‘payment aggregators’ that can provide you with a ‘sub-merchant account’ under their own merchant accounts. This simplifies things for merchants, as they no longer have to worry about compliance.

And finally, your hard-earned revenue will be transferred from your (sub-)merchant account to your bank account, thus finishing the life-cycle of a transaction. 

The kind of system described above is what allows money to zip around online, thus enabling everything from small business payments to major international deals.

The online payment processing cycle

Source: Cashfree

Payment gateway vs payment processor

The term ‘payment processor’ often comes up during discussions of online payment gateways. The way these two terms are typically defined, they refer to distinct components of online payment systems, as can be seen in the diagram above as well: online payment gateways mainly serve to ferry transaction details between an online store and a payment processor, while payment processors mainly serve to transfer various pieces of information between the issuing bank, acquiring bank, and the card network.

The payment processor is also responsible for reversing erroneous charges, and for implementing stringent checks to minimise the chances of fraudulent transactions being accepted.

However, in India, the RBI’s definition of payment gateways (“[...] entities that provide technology infrastructure to route and facilitate the processing of an online payment transaction without any involvement in the handling of funds”) is so broad that it covers both online payment gateways and payment processors, as conventionally defined. This means that effectively all Indian payment gateways (such as PayTM, PayPal India, Razorpay, PayU, CCAvenue, etc.) also double up as payment processors.

You might also sometimes run into the term ‘payment service provider’, which may refer either to a payment processor or a payment gateway + payment processor hybrid.

From this point on, ‘online payment gateway’ will refer to its broader, India-specific meaning, although ‘payment processor’ may also be used where appropriate. 

The benefits of online payment gateways

Online payment gateways offer you a wide variety of benefits, such as:

1. Improved conversions

Without an online payment gateway, your online store will deliver an unsatisfactory customer experience: your customers will be forced to pay you either with cash/card on delivery or by carrying out a bank transfer to an account specified by you. In such a scenario, there’s a good chance that customers might hesitate to go ahead and purchase from your store just because of the hassle it might entail.

Thus, having an online payment gateway to handle in-store purchases is essential if you wish to provide customers with the kind of convenient experience that they are now used to. It also goes a long way towards giving your store an air of professionalism and trustworthiness. All of these factors play a part in improved conversion rates.

2. Quick and secure checkouts

Online payment gateways greatly simplify what is actually quite a complex process, making life much easier for you and resulting in a smooth customer experience. Moreover, their inbuilt security-related and fraud-detection mechanisms allow both customers and sellers to put their minds at ease, and will enable you to scale your operations with confidence.

3. Earnings tracking and business insights 

Online payment gateways are now going above and beyond to add value to your business. They offer dashboards, earnings trackers, and reports that offer useful insights into your overall performance and the behaviour of your store’s visitors so that you can formulate even more effective business plans.

Earnings tracking and business insights

Source: Razorpay

Choosing the right online payment gateway for you

Several Indian online payment gateways

Source: The Review Stories

With a plethora of options at your disposal, you need to choose the online payment gateway that's the right fit for you and your business. 

Here are a few key criteria to consider when deciding which online payment gateway to go with; at the end of the list, you’ll also find a reference page where you can compare several Indian payment gateways using these criteria. 

1. Availability and reliability

If your payment gateway goes down, you won’t be able to accept any payments on your store. This means that gateway downtime translates directly to a loss of revenue for you. Hence, it’s critical that you have some idea of how reliable a payment gateway is.

Unfortunately, there’s no concrete way to find this out ahead of time apart from going through customer and seller reviews. This comparison page for Indian payment gateways might be a good start.

2. Industry regulations and security 

When sensitive card details and confidential data are at stake, you need to ensure that you are protected against hacks or leaks and maintain customers’ trust. The credibility of your business is on the line. 

Thankfully, various regulatory bodies have laid down certain security-related practices and standards that should be followed by online payment gateways. Some of these are:

A payment gateway that has strong security standards will be very proactive about making this fact known. For instance, PayTM makes it clearly known that it implements all of the four practices/standards listed above, along with a few others. Hence, you should look for online payment gateways that make it clear that they do, in fact, implement at least the list above.

3. Plugins for common ecommerce platforms

A plugin is a small bundle of software that can add a specific kind of functionality to your website or online store. Almost all payment gateways in India provide plugins to allow you to implement a shopping cart in your store. However, they vary in terms of which platforms they support, so you should make sure that the gateway you’re interested in supports the platform you’re using.

An additional aspect to consider here is the ease with which these plugins can be integrated. While most payment gateway plugins try to make it as easy as possible for you to start using them, some basic programming knowledge or familiarity with a few technical terms might be needed to implement them. 

If you don’t know any coding at all, whether you’ll need to hire a developer or not to integrate a gateway will mostly boil down to your mileage. If you have the time and inclination to look up a few terms like ‘webhooks’ and ‘API keys’, you might be able to handle the whole process alone, especially if you opt for a hosted gateway, as discussed on the next point.

Most online payment gateways typically provide quite detailed instructions on the steps to be followed in order to integrate their plugins, so it might be a good idea to go through a few such guides to get a high-level feel for what plugin integration involves. For instance, here’s a video by Razorpay that shows you how to integrate the Razorpay plugin with a Shopify store:

4. Hosted gateways vs integrated gateways

An integrated gateway is one that allows customers to enter payment information and place orders within your store, without redirecting them to some other site. Hosted gateways, in contrast, redirect your customers to the payment processor’s platform in order to allow them to place orders.

Both types have their pros and cons. With hosted gateways, the payment processor takes care of security-related compliance, which is a major plus. In addition, since the payment processor handles the entire payment process, the merchant doesn’t have to worry about too many behind-the-scenes technical issues. However, the redirections these gateways carry out might make for  poor customer experience, and might also hurt your conversion rate if some customers don’t trust a certain payment gateway. 

The big advantage of integrated gateways is that the merchant has complete control of the user experience throughout the checkout process. However, they also require the merchant to take responsibility for ensuring that transaction data are secured. Also, they are likely to require more technical know-how on the part of the merchant when they’re being set up, and in the event of technical issues.

5. Supported payment methods 

Customers should have multiple payment methods available to them, e.g. credit/debit cards, net banking, UPI, mobile wallets, etc. Several payment gateways also allow customers to pay using international cards and transfer methods, and even to split up their payments into EMIs. Make sure to find out which methods are relevant for your business and check which payment gateways offer those. 

PayU, for example, offers over 100 payment methods for customers, including ‘Buy Now Pay Later’; such methods can help you establish long-term relationships with your customers. 

6. Fees and additional charges

Most payment gateways have quite similar standard fee structures, with most of them offering custom pricing for very large order volumes.

For instance, RazorPay has a standard plan where they charge 2% per transaction and give you access to their “Flash Checkout”, Dashboard, Reports, and a couple of other services. This plan comes with zero setup and annual maintenance charges. Instamojo charges 2% + ₹3 per transaction, while Citrus charges 1.99% + ₹3 per transaction.

You’ll probably want to run through a few calculations with some reasonable order figures to make sure you’re comfortable with the cut you’ll have to pay out to the gateway you go with.

7. Merchant account

Some payment gateways require you to sign up for a merchant account, while others can transfer funds directly to your bank account. While opting for the latter sort of gateway might mean one less step for you, doing so may result in higher transaction fees and longer funding times. Make sure to get a complete picture of the relevant charges from the sales teams of the gateways you’re interested in.

Here’s a handy resource to compare various Indian payment gateways on the basis of these criteria, as well as others.

Setting up an online payment gateway

Once you’ve decided which online payment gateway to go with, you can set it up by following the instructions listed on its official website or seek assistance from its sales team.

The exact process for setting up an online payment gateway on your store will vary depending on the gateway and the platform your store is built on. Nevertheless, as an example, let’s consider the main steps to integrate PayTM with a Shopify store:

  1. Create a PayTM account
  2. Generate your API keys; these serve to authorise you to access PayTM’s services
    Generating API keys in PayTM
    Source: PayTM
  3. Log into your Shopify account
  4. Navigate to Settings > Payments
  5. Click the ‘Choose alternative payment’ button under ‘Alternative payment methods’
    'Payment providers' screen in Shopify
    Source: PayTM
  6. Select ‘PayTM’: you’ll be taken to the ‘PayTM Payment Setup’ page
  7. Fill in the requested details, select the payment methods you want to be supported, tick ‘Enable test mode’ if you’d like to simulate a few transactions, and then click ‘Activate PayTM’.
    PayTM Merchant ID and Key entry in Shopify
    Activate PayTM button
    Source: PayTM

And voilà: you’re now well on your way to receiving online payments through PayTM!

In general, you’ll need to follow roughly the same steps if you want to integrate any online payment gateway into your store: make sure you have an account with the relevant gateway, obtain an API key or a similar ID that it can use to uniquely identify you, and then plug that key or ID into the gateway integration area in your store platform’s dashboard. And with that, you should be all set to cater to customers who prefer to pay using that particular payment gateway.

Online payment gateways: an indispensable technology for today’s business owners

Modern payment gateways have played a key role in enabling ecommerce to bloom the way it has. They simplify what could easily have been a very cumbersome and risky process, and benefit customers as well as sellers. You too can deploy the immense power they provide and serve your customers with peace of mind, secure in the knowledge that your revenue will always be safe and sound.

FAQs

What is an online payment gateway?

An online payment gateway is an interface that enables online merchants to receive online payments in a hassle-free manner. In India, the term ‘payment gateway’ usually has a broader meaning, encompassing the traditional role of a ‘payment processor’ (i.e. transferring data among the issuing bank, acquiring bank, and card networks).

What are the different payment gateways available in India?

In India, there are several payment gateway options available, such as PayTM, Citrus Pay, RazorPay, PayUBiz, Instamojo, PayUMoney, and JusMoney, to name a few.

How to choose the right payment gateway?

While there are many more criteria that could be used, here are 7 criteria you should consider when choosing a payment gateway:

  • Availability and reliability
  • Industry regulations and security
  • Plugins for common ecommerce platforms
  • Hosted vs integrated
  • Supported payment methods
  • Fees and additional charges
  • Merchant account

Do online payment gateways charge a fee?

Most payment gateways charge a nominal fee of up to 2% per transaction. You can weigh your options against your budget and decide what kind of a rate is acceptable to you.

How much time do online payment gateways take to process a payment?

For most payment gateways, the actual transaction takes almost no time at all. However, it can take anything from 1 to 3 days, and sometimes even longer, for you to actually receive those funds. The main reason it takes this long is that each bank has several anti-fraud and settlement-related protocols that usually involve holding on to transferred funds for a while to make sure they are legitimate.

Can online stores have multiple payment gateways?

Yes, your store can have multiple payment gateways. However, you might need to configure them separately. You can also add a default payment gateway from among all the choices available on your store.

How much will it cost to add a payment gateway to my online store?

It depends on which gateway and which kind of plan you choose. The standard plans of most gateways are free to set up, and you will incur charges only for successful transactions. However, custom plans designed for large volumes are much likelier to involve setup charges and annual maintenance fees.

How do I set up an online payment gateway?

The process will vary depending on the gateway and your store’s platform. It is, however, reasonably straightforward for most platforms. For instance, for Shopify stores, you typically need to:

  1. Navigate to Settings > Payments
  2. Select the payment processor you’re interested in
  3. Enter certain secret IDs and keys previously obtained through your account with the payment processor
  4. Select the payment methods you’d like to be able to accept
  5. Click the ‘Activate’ button

Do you want to create your own online store?